Work

Optimal Liquidation With Signals: The General Propagator Case

Year: 2025

Type: article

Abstract: ABSTRACT We consider a class of optimal liquidation problems where the agent's transactions create transient price impact driven by a Volterra‐type propagator along with temporary price impact. We formulate these problems as maximization of a revenue‐risk functionals, where the agent also exploits available information on a progressively measurable price predicting signal. By using an infinite dimensional stochastic control approach, we characterize the value function in terms of a solution to a free‐boundary ‐valued backward stochastic differential equation and an operator‐valued Riccati equation. We then derive analytic solutions to these equations, which yields an explicit expression for the optimal trading strategy. We show that our formulas can be implemented in a straightforward and efficient way for a large class of price impact kernels with possible singularities such as the power‐law kernel.

Source: Mathematical Finance

DOI: 10.1111/mafi.12465

Authors: Eduardo Abi Jaber, Eyal Neuman

Institutions: École Polytechnique, Centre de Mathématiques Appliquées de l'École polytechnique, Imperial College London

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,840

OpenAlex ID: W4411102845

FWCI: 5.634

Cites: 41

Cited by: 8

Related to: 10